The suspended EEA Life Settlements fund’s latest annual report has arrived – accompanied by a critical statement from its auditors.
In its audit of the fund’s annual report for the year ended 31 December 2011, Ernst & Young says the fund – which was suspended in November 2011 after the FSA labelled traded life policy investments as “toxic” – is worth less than the $871m(£575m) valuation given by its directors.
E&Y says: “The maximum reasonable value that could be attributed to the investments in life policies at 31 December 2011 is approximately $100m less than the value recorded in the financial statements based on the available evidence at the year end.”
It added: “We consider that profit and net assets are overstated by at least $65m.“
E&Y also states that it was “unable to form an opinion as to whether the directors exercised appropriate judgement in calculating the Policy NAV and hence whether they issued and redeemed shares at appropriate NAVs”.
It found that it was also unable to form an opinion as to fees, including management fees and performance fees, “were calculated properly”.
In December 2011, the board of the EEA Life Settlements fund suspended dealings after becoming inundated with unprecedented levels of redemption requests from investors after the FSA described life settlement funds as high risk, toxic products.
One of the criticisms levelled by E&Y notes that life expectations have not been updated since the purchase of the life policies for most of the portfolio, which it believes will have led to an understatement of the expectation of life for the remaining policies.
The annual report also says the EEA Life Settlements fund is likely to remain suspended until a restructuring is completed.
Last year, the group outlined three options for investors when it reopens – remaining invested, opting for run-off shares that will see money returned as policies mature, or the selling off of holdings to institutional investors at a discount.